Impact of direct payments and non-financial support on smallholder income from environmentally friendly agriculture in Tohoku region, Japan

Abstract

In the face of climate-related challenges in agriculture, Japan's ‘Direct Payment for Environmentally Friendly Farming’ policy stands as a proactive effort to incentivize sustainable practices among smallholder farmers. This study evaluates the policy's impact on smallholder farmers' net farm income within the Tohoku Region, employing a propensity score matching (PSM) methodology to analyze survey data encompassing household-specific attributes and engagement with the policy. Our results indicate that participation in the direct payment scheme enhances farmer income, averting an estimated reduction of 125 thousand JPY per annum. While direct payments demonstrated a positive effect on smallholder income, our findings surprisingly revealed that skill training, a key non-financial support, had a negligible impact on household earnings. The findings highlight the policy's efficacy in promoting practices that decrease reliance on chemical inputs and increase organic farming, thereby contributing to carbon emissions mitigation. Notably, our analysis suggests that subsidies directed towards integrating renewable energy on farms may have a less immediate financial impact compared to other forms of support. This research underscores the complex interplay between agricultural subsidies, environmental sustainability, and farmer income, revealing that direct financial incentives are pivotal in fostering climate-conscious agricultural practices among smallholders.